Dollar climbs further on Fed-taper updraft

SaumyaVaishampayan

NEW YORK (MarketWatch) — The dollar rose broadly on Thursday, propelled by the Federal Reserve’s long-awaited decision to slow its monetary stimulus.

AFP/Getty Images

The Fed said Wednesday it would cut the size of its monthly asset purchases to $75 billion a month, beginning in January. The central bank tempered its announcement by emphasizing that interest rates would remain low “well past” the time that the unemployment rate falls below its 6.5% threshold, further emphasizing the idea that tapering isn’t tightening.

While the unwinding of Fed stimulus is generally seen as positive for the dollar, RBC Capital Markets senior currency strategist Sue Trinh said the overall forward guidance offered by the central bank actually pointed to a longer stretch of quantitative easing than many in the market expected.

“Now we know that tapering will begin in January, with likely cuts of $10 billion/meeting, which would bring the program to an end in mid-December [2014]. So not only will QE end a bit later than was previously expected, but the Fed will also buy more than it would have” if it had waited until January but announced a $15 billion-a-meeting taper, Trinh said Thursday.

The ICE dollar index
DXY, -0.23%
which compares the U.S. dollar with six other currencies, rose to 80.632 from 80.477 late Wednesday. Likewise, the WSJ Dollar Index
BUXX, -0.14%
increased to 73.93 from 73.79.

“The way markets are already questioning the [Bank of England’s monetary-policy committee’s] policy forward guidance may be a pre-cursor to what happens in the U.S. as unemployment falls and there is an urgent need to lower the unemployment threshold for tightening,” said Kit Juckes, a currency strategist at Societe Generale, in a note.

The Australian dollar
AUDUSD, +0.1040%
bought 88.57 U.S. cents, little changed from 88.58 U.S. cents late Wednesday.

The dollar
USDJPY, +0.02%
edged down to ¥104.19 from ¥104.30 late Wednesday, when the Fed decision sent the greenback surging above ¥104. The Bank of Japan is scheduled to release a monetary-policy statement on Friday.

Despite forecasts for no action at its December meeting, a Wall Street Journal survey showed all 10 economists polled predicted further easing from the Japanese central bank sometime next year. Many cited the scheduled hike to Japan’s national sales tax, due in April.

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